Does Hertz Have a Bright Future?

With shares of Hertz (NYSE:HTZ) trading around $20, is HTZ an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Hertz engages in the car and equipment rental businesses around the world. The company operates in two segments: Car Rental and Equipment Rental. The Car Rental segment rents and leases various car models on an hourly, daily, weekend, weekly, monthly, or multi-month basis. This company operates car rental locations at or near airports, in central business districts, and suburban areas of cities, as well as retail used car sales locations, provides car-sharing services, and fleet leasing and management services worldwide. Hertz also sells and rents earthmoving equipment, material handling equipment, aerial and electrical equipment, air compressors, generators, pumps, small tools, compaction equipment, and construction-related trucks.

Hertz reported quarterly earnings that beat expectations, partially due to the success of its purchase of the discount car rental chain Dollar Thrifty. Hertz’s earnings of 73 cents a share beat analyst expectations of 71 cents and revenue rose 22 percent to $3.1 billion, topping expectations of $3.06 billion according to analysts from Thomson Reuters. Still, Hertz reaffirmed its lower full-year guidance, but said it has been seeing improvement in sales at its Hertz locations post-government shutdown.

T = Technicals on the Stock Chart Are Mixed

Hertz stock has been steadily rising over the last several years. The stock is currently trading slightly below highs for the year and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Hertz is trading below its rising key averages, which signal neutral to bearish price action in the near-term.

HTZ

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Hertz options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Hertz Options

37.58%

16%

14%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

December Options

Steep

Average

January Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Hertz’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Hertz look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

4.38%

28.57%

130.77%

-180.30%

Revenue Growth (Y-O-Y)

21.99%

22.00%

24.25%

15.13%

Earnings Reaction

N/A

-2.45%

0.45%

1.65%

Hertz has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Hertz’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Hertz stock done relative to its peers, Avis Budget Group (NASDAQ:CAR), United Rentals (NYSE:URI), Amerco (NASDAQ:UHAL), and sector?

Hertz

Avis Budget Group

United Rentals

Amerco

Sector

Year-to-Date Return

34.66%

58.27%

45.69%

63.45%

51.51%

Hertz has been a poor relative performer, year-to-date.

Conclusion

Hertz is involved in the vehicle and equipment sale and rental business all around the world. The company recently reported earnings that impressed the markets. The stock has been steadily rising over the last several years and is now trading slightly below highs for the year. Over the last four quarters, earnings and revenue figures have been rising, which has generally pleased investors. Relative to its peers and sector, Hertz has been a poor year-to-date performer. Look for Hertz to OUTPERFORM.

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